The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50 per cent on Wednesday, the first increase in almost four years. The six‑member Monetary Policy Committee voted unanimously to lift the rate and shifted the policy stance from neutral to calibrated tightening, a change approved by a 4:2 majority. External members Nagesh Kumar and Ram Singh had preferred to keep the stance neutral.
The decision follows a backdrop of rising consumer‑price inflation, which climbed to 4.82 per cent in August—above the RBI’s 4 per cent medium‑term target for a third month in a row—and a core inflation rate of 4.2 per cent. The bank cited higher food and fuel prices, a deficient monsoon, El Nino conditions and volatile international oil prices, noting that the West Asia conflict has pushed the Indian crude basket to an average of USD 116.1 a barrel in September. The RBI also raised its retail‑inflation forecast for the current fiscal year to 5.2 per cent and its 2026‑27 GDP growth estimate to 7.1 per cent.
Economic activity remained robust in the second quarter, with manufacturing and services continuing to expand. Credit growth, already at a decadal high of over 18 per cent, is expected to moderate slightly but should remain sufficient to support growth, the RBI said. The bank noted that the impact on broader economic expansion is unlikely to be significant.
Governor Sanjay Malhotra signalled that rate cuts are off the table for the near term and that further hikes could follow depending on inflation and growth outcomes. Economists at Kotak Mahindra Bank and HDFC Bank project additional 25‑50 basis‑point hikes, with a cumulative increase of 50‑75 basis points over the coming months if global risks persist.
The rupee fell to a provisional 96.78 against the dollar, its lowest intraday level since early October, while the Sensex and Nifty closed lower, with the benchmark indices losing 0.59 per cent and 0.76 per cent respectively. The RBI assured that it would support the rupee’s orderly movement toward its correct value and manage volatility.
